A Lot Could Go Right... or Wrong If that's what caused the stock market to plummet last fall, it's fair to ask if it could happen again. And if it does happen again, how can investors protect their portfolios from feeling the full brunt? Better yet, is there a way to profit from it? As for the first question, no doubt the stock market could quickly drop 10% - 20% for any number of reasons. The Fed's response to rising inflation is only one of them. Geopolitical tensions are rising. Hopes for a new trade deal with China took a blow this week when a U.S. Trade Representative admitted, "Much still needs to be done before an agreement can be reached." At the same time, President Trump was in Vietnam meeting with North Korean leader Kim Jong Un to negotiate a nuclear treaty. Meanwhile, Trump's former personal attorney, Michael Cohen, was testifying against Trump back in Washington, DC. All of that is occurring in the days running up to the expected release of Robert Mueller's findings regarding possible criminal activity within the White House. Based on its recent behavior, the stock market seems to be assuming that everything will turn out fine. A trade deal with China will soon be reached. North Korea will become our ally instead of our enemy. And nothing in the Mueller report will implicate the Trump administration. You can believe that if you like, but a lot could also go wrong. China plays hardball and walks away from the bargaining table. North Korea decides to go rogue and continue its pursuit of nuclear weapons. The Mueller report entangles President Trump in a legal morass that hamstrings the remainder of his term. Your Best Option You can wait to see how it all turns out before taking action, but by then it may be too late. Nobody likes thinking about all the things that could go wrong, but as an investor I'd rather base my portfolio strategy on logic rather than emotion. And logic is telling me that there is more risk in the market than the VIX, or "fear gauge," would suggest. If you aren't familiar with the VIX, it is the CBOE Volatility Index. It moves based on the number of short-term put and call contracts purchased on the SPDR S&P 500 ETF (SPY). Put options increase in value when the stock market goes down. Call options increase in value when the stock market goes up. For all of 2018, the average closing value of the VIX was 16.6. During the fourth quarter, while the stock market was hitting the skids, the average reading jumped up to 21.1. For the month of February, the average dropped to 15.3. I think that's excessively low and presents a trading opportunity too good to pass up. A few days ago, a call option on the VIX expiring on August 21 at a strike price of $10 could be bought for $7. That means if the VIX rises above 17 at any point over the next six months you will make money on that option. I'd be shocked if the VIX did not rise above 20 at some point over the six months. In that case, this option would have an intrinsic value of $10. That represents a 43% gain over the $7 purchase price. All it would take is a spate of temporary panic if one of the risk factors mentioned above starts going sideways. Hope Is Not a Strategy Of course, I don't hope anything like that will happen. But as the old saying goes, hope is not a strategy. What is a strategy is objectively measuring the risk factors in the stock market and placing your bets accordingly. Regardless of mounting risk factors, how would you like to make money in up or down markets? My colleague Amber Hestla has found a way. Amber Hestla is chief strategist of the investment advisory Income Trader. She's an ex-military intelligence officer who has spent her career sifting through white noise to unearth the relevant facts. She has adapted her skills to create a money-making method that benefits investors of all types, in all types of investment climates. Amber Hestla's strategy can help you make money every time you trade. Her track record speaks for itself. Want to know more? Click here for details. | 
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